Postal Exec: CSRS Could Spur Steeper Rates in '06

Though the Civil Service Retirement System Funding Reform Act of 2003 ensures stable postal rates until 2006, it could lead to higher-than-forecast increases in the future, a postal official said.

The act, signed into law in April, lowered the amount the U.S. Postal Service was required to pay into the Civil Service Retirement System. It saved the agency an estimated $2.9 billion in fiscal year 2003 and $2.6 billion in FY 2004, prompting a guarantee by postmaster general John E. Potter that postal rates would not rise until calendar year 2006.

However, the act requires that savings beyond FY 2004 be placed in an escrow fund. As a result, the USPS must be prepared to pay $3.2 billion into the fund by Oct. 1, 2005.

"The only way this money can be raised is through rate increases, so if it is $3.2 billion, that's roughly a 5 percent rate increase across the board just to support the escrow fund," said Ralph Moden, senior vice president, government affairs, USPS. "It has nothing to do with any other inflationary pressures or cost."

A USPS report to Congress, President Bush and the General Accounting Office on Sept. 30 had a similar estimate of the escrow account's effect, stating that it would raise rates by 5.4 percent in 2006 and lead to faster rate increases in the future.

Moden said the postal service could begin preparing for the next rate case in late spring or early summer 2004 for filing by the beginning of 2005.

"Time is of the essence here," he said. "We would need to know, somehow, at the end of that timeframe if not sooner -- what [Congress's] intentions are. If we don't know that the escrow goes away, then we are going to have to build it into our rate case."

Moden said the USPS "is making the industry aware of what the implications of this escrow fund are."

This is the second time in two months that a senior postal official warned of steep increases in the next rate case. Deputy postmaster general John Nolan caused a stir at the National Postal Forum in Kansas City last month when he said that a double-digit rate increase could be in place by the end of 2005. Though the USPS quickly corrected Nolan's statement about the timing, it did not retract his reference to a double-digit increase.

The postal service also wants to end its funding of the military time included in postal workers' total service. Noting that it was the only agency responsible for funding the costs of military time as part of CSRS benefits, the agency submitted a second report Sept. 30 stating that the Treasury Department should fund the military portion, as it does for other agencies.

If that happened, the USPS estimates its CSRS obligation would be overfunded by $10 billion. Under the postal service's plan, that $10 billion would go into a separate account designated for retiree health benefits.

The Treasury Department and the federal Office of Personnel Management oppose the postal service's plan, arguing that the USPS should be responsible for the military time.

The GAO is expected to issue its recommendation on the USPS reports by the end of November. Congress then will have 180 days to revisit both issues.

"Revisit could mean they accept the postal service proposal, they change the postal service's proposal, they send it back to us, or they don't do anything," Moden said. "But whatever they decide, the decision would come on or around the end of May, which is just about the time we would be preparing for a rate filing."

Meanwhile, the Senate Governmental Affairs Committee has scheduled an oversight hearing Nov. 5 to discuss the Presidential Commission on the U.S. Postal Service's recommendations. Potter and U.S. comptroller general David M. Walker are to appear. Though the commission's report will be the hearing's focus, "we will certainly raise the CSRS issue," Moden said.